AI Fuels Record Data Center Investments Amid Growing Demand

The rapid adoption of artificial intelligence (AI) is propelling data center development to unprecedented levels, with global financing for these projects expected to reach approximately $170 billion in 2025. While AI is creating demand for larger and more powerful data centers, traditional data storage needs continue to grow, highlighting a balanced yet dynamic industry evolution.

AI’s Growing Role in Data Center Demand

AI’s rapid rise is reshaping the data center landscape, but its workloads are expected to account for less than 50% of global data center capacity by 2030, according to JLL’s 2025 Global Data Center Outlook. Cloud-based applications and traditional data storage remain dominant drivers of demand.

“AI is still in its infancy, with significant growth potential ahead,” said Michael Rareshide, partner at Site Selection Group. This growth is occurring alongside increasing data demands from tech giants like Google and YouTube, which continue to rely on traditional data centers.

Record-Setting Investments and Financing

This year’s data center financing is projected to set a new record, with large-scale campuses costing between $5 billion and $20 billion to develop, according to JLL. These projects often require significant capital to secure land, power, and infrastructure, driving real estate developers to form partnerships and seek diverse funding sources.

“Traditionally, we dealt with 50- or 100-megawatt campuses, but now we’re looking at gigawatt-scale projects,” said Andy Cvengros, managing director at JLL’s U.S. data center markets team. These larger projects necessitate funding from private equity firms, which have dominated data center investments in recent years.

However, despite strong investor interest, trading volumes for data centers are expected to rise modestly in 2025 due to high interest rates and limited inventory for sale.

Navigating Power Scarcity

Power availability remains a critical factor in data center site selection. Core U.S. markets like Atlanta, Chicago, Dallas-Fort Worth, Phoenix, and Northern Virginia are nearing power capacity, forcing developers to expand into secondary regions such as Richmond, Virginia.

Next-generation AI workloads demand higher rack density and advanced cooling systems, which require increased power. Despite these needs, data centers are expected to account for only 2% of global electricity consumption in 2025. The projected rise in electricity demand from data centers by 2030 will remain far below the energy needed for electric vehicles and air conditioning, according to JLL.

Innovations in Power Generation

To meet the rising energy demands of data centers, tech companies are increasingly exploring nuclear power as a sustainable solution. In 2024, several significant agreements were reached for nuclear power plants, including Michigan’s Palisades Nuclear Plant and Three Mile Island. The development of small modular reactors (SMRs), which offer more localized and scalable energy solutions, is also gaining traction, with agreements expected to double in 2025.

Although commercial deployment of SMRs in the U.S. is not anticipated until 2030, their potential as a green energy source could revolutionize data center site selection.

“Sites that were previously off-limits due to power constraints could become viable with SMRs,” said Rareshide of Site Selection Group.

A Global Perspective

The United States is well-positioned to support data center expansion, thanks to its abundant rural land and capacity for power generation. However, regions like Dublin, London, and Amsterdam face significant power shortages, limiting growth opportunities. Emerging markets, including Saudi Arabia and India, are expected to play an increasing role in global data center development.

Balancing AI Growth and Traditional Needs

While AI is driving a surge in data center investment, traditional data storage requirements continue to play a vital role in the sector. Developers and investors must navigate these parallel demands, balancing the innovative possibilities of AI with the foundational needs of existing applications.

By addressing power challenges and embracing cutting-edge technologies like SMRs, the data center industry is poised for sustained growth, meeting the needs of a digitally driven future.
Source: CoStar News